INDEX 500 400 PRICE AND PRODUCTION DURING THE WORLD WAR INDEX INDEX 3001 200 100 1913 14 15 16 17 IDEX 500 400 300 200 00 COTTONSEED 200 PRICE 1 PRICE PRICE A A A CONSUMPTION PRODUCTION PRODUCTION 175 150 125 100 SUGAR 75 PRICE TOTAL SUPPLY INDEX 400 100 INDEX NUMBERS, 1911-1913-100 225 INDEX 400 300 200 -100 400 300 200 100 C O 1913 14 15 16 17 ia is '20 '21 1922 SOURCE BUREAU OF LABOR STATISTICS, REVIEW OF ECONOMIC STATISTICS, 1920, 1921. CHART 51 INDEX 400 300 FLAXSEED 100 O O 1913 14 15 16 17 18 19 20 21 1922 200 PRODUCTION WHITE POTATOES PRICE 1911-1919 INDEX Composite Price INDEX INDEX 400 400 Min 300 300 ©200 200 OC 100 400 O O 1913 14 15 16 17 18 19 20 2 1922 Acreage Harvested 300 1915 200 1913 1914 1916 SOURCE Department of Agriculture and Works Progress Administration production index is based on the 100 400 300 CHART 52 FARM CROPS: PRODUCTION. PRICE. 200 100 WOOL IMPORTS 1917 SILK FRICE 1918 O O 1913 14 15 16 17 18 19 20 21 1922 INDEX NUMBERS, 1911-1913-100 225 INDEX 500 100 O O 1913 14 15 16 17 18 19 20 21 1922 75 400 DD 39-294 300 200 100 INDEX 500 400 300 200 100 PRICE INDEX 300 200 a small amount of additional production. Yet increase in output was urgently needed. But a 46-point rise in the price index in order to get a 7-point increase in output is manifestly dangerous. Not only is the disproportion costly; it also sets forces to work which cannot be stopped, and the result was still higher prices in the following years with declining production. Though it serves no useful purpose and is positively harmful, inflation is inevitable if, in order to get a very small increase in output, the price on the entire supply is raised high enough to cover the cost of the small producers who often have a cost much higher than the average. In other words, the so-called bulk line cost principle of fixing prices 100 O 1913 14 15 16 AND PRODUCTION DURING THE WORLD WAR 17 PRICE PRODUCTION CEMENT CHART 50 LEAD PRODUCTION INDEX 200 O 15 '16 17 18 19 20 21 1922 O O 1913 14 15 16 17 '18 19 20 21 1922 100 PRICE TAN 200 100 O 913 14 15 16 17 '18 19 20 21 1922 INDEX 300 INDEX INDEX 300 300 200 SOURCE Bureau of Labor Statistics, REVIEW OF ECONOMIC STATISTICS, 1920, 1921. 100 INDEX INDEX 300 200 100 LIME PRICE 200 PRICE 100 GLASS PRODUCTION PRODUCTION PETROLEUM PRICE Crude) O 1913 14 15 16 17 18 19 20 21 1922 PRODUCTION O 1913 14 15 16 17 18 19 20 21 1922 INDEX 200 100 INDEX 200 100 O 1913 '14 15 16 17 18 19 20 21 1922 involves the paying of enormous windfall profits to the majority of producers in order to get a few high cost producers into the market. Most important, the result is to raise costs to all the users of a given commodity and, if the process is pyramided throughout the economy, inflation such as we had from 1918 to 1920 results. INDEX 300 Charts 50 and 51 graphically emphasize the fact that increasing prices do not bring about commensurate increases in production. While the index of cottonseed prices soared from about 110 in 1915 to 300 in 1918, production was actually declining. Other commodities show somewhat similar movements with production of only 2 of the 13 commodities approximately paralleling price increases during a part of the period 1913-22. Chart 52 shows that, contrary to popular belief, the enormous inflation of farm prices and land values did not bring a striking increase in supply. There was a 200 100 INDEX 500 400 PRICE AND PRODUCTION DURING THE WORLD WAR INDEX INDEX 200 COTTONSEED 175 PRICE AAA PRODUCTION 150 125 PRICE 100 PRODUCTION 75 SUGAR PRICE TOTAL SUPPLY INDEX 400 300 200 100 INDEX NUMBERS, 1911-1913-100 225 INDEX 500 400 300 200 100 400 300 200 100 0 O ·9:3 14 15 16 17 ia is '20 21 1922 SOURCE BUREAU OF LABOR STATISTICS, REVIEW OF ECONOMIC STATISTICS, 1920, 1921. INDEX 400 300 CHART 51 100 200 PRODUCTION 1913 FLAXSEED O 1913 14 15 16 17 18 19 20 21 1922 WHITE POTATOES PRICE 1911-1919 Composite Price INDEX 500 Production Acreage Harvested 1914 400 -300 1915 200 1916 SOURCE Department of Agriculture and Works Progress Administration production index is based on the 100 O 1913 14 15 16 17 18 19 20 21 1922 INDEX 500 400 300 200 100 CHART 52 FARM CROPS: PRODUCTION. PRICE. 200 100 PRICE 1917 WOOL IMPORTS CONSUMPTION 1918 SILK FRICE INDEX NUMBERS, 1911-1913-100 225 16 17 18 19 20 21 1922 INDEX 500 100 400 1913 14 15 16 17 18 19 20 21 1922 75 DD 39.294 300 200 100 INDEX 500 $400 300 200 100 small increase in acreage, about 10 percent between 1914 and 1918, while physical production, partly influenced by climatic factors, actually declined after 1915. It does not follow that price never performs its function of increasing supply. These statistics do not indicate that the laws of supply and demand fail entirely; 400 350 300 250 200 150 100 50 CHART 53 COMPOSITE MONTHLY PRICE OF FINISHED STEEL MONTHLY STEEL INGOT PRODUCTION AND ANNUAL Index Numbers 1914=100 Ingot 1917 Price: Capacity 1918 1919 400 350 300 250 200 150 100 1914 1915 1916 Source: Iron Age: American Iron and Steel Institute rather they call attention to conditions under which the laws fail to operate. Prices are relative. A higher price is supposed to increase the supply of one commodity-wheat, for example-at the expense of another, by causing farmers to shift production from a low-priced commodity to another which will net them But if all prices are increased, this principle has no opportunity to operate. more. 50 D-D-39-292 In order to get some of the benefits of the free price system, it is necessary under war conditions to keep some prices down. Otherwise, a race is begun among various prices, with no increase in production resulting. Turning now to the industrial side of the picture, chart 53 shows that the increase in ingot production preceded the rise in price. When capacity levels were reached in 1916, the 150-point rise in steel prices in 1917 produced no increase in output. but the expansion of capacity was continued after the price was controlled in 1917, In the case of Portland cement, a pattern different from that of steel is evident since increasing prices were accompanied by declining production in the early war years. (See chart 54.) But production expanded after the war when prices were declining. Cotton textiles show roughly the same picture and are especially important in the cost of living. Raw cotton consumption was limited by spindle capacity CHART 54 PRODUCTION AND CAPACITY OF PORTLAND MILLIONS OF BARRELS 250 200 150 100 50 0 1910 PRICE PRACTICAL CAPACITY 1915 1920 PRODUCTION 1925 PRICE PER BARREL 1250 1935 1940 1930 (See chart_55.) The which increased about 10 percent from 1914 to 1919. precipitous jump in prices served no purpose, but contributed to the 300 percent jump in clothing cost and to the necessity of raising wages. WHOLESALE PRICES, WAGES, AND COST OF LIVING The cost of living started up before the declaration of war by the United States and continued rising throughout the war period. With only a brief pause following the Armistice, the rise continued into 1920 when the cost-of-living index stood at more than double the prewar level. Of the three main components in the cost of living-clothing, food, and rents-the increase in clothing prices was much the greatest. (See chart 56.) A comparison of wholesale prices, wages, and cost of living shows that the rise in wholesale prices was first and that cost of living and wages were, to an important extent, dragged up by the rise in wholesale prices. (See chart 57.) There are usually important time lags between wholesale price rises and increases in the cost of living but this does not minimize the importance of avoiding price increases wherever possible. Thus, when we entered the war, prices were 64 percent above the 1913 level; but the cost of living was up only 20 percent-less than one-third as much. Average hourly earnings had risen from 31 cents per hour to 35 cents 64300-41-pt. 1-15 |